Coming up with an estate plan can be expensive and challenging. But by creating one, you will have a plan for what you want to happen whenever you become incapacitated. It shows how you want your assets to be distributed after you die. It will also provide a plan on how your dependents will be taken care of.
It is common for people to think that only wealthy or older individuals need an estate plan. Every adult should come up with an estate plan, regardless of financial and age or relationship situation.
The most essential thing is to just get started on your estate plan. It does not have to be perfect the first time round. It is always possible to amend and update your estate plan. But, having one is better than nothing. These comprehensive steps will walk you through the main requisites of developing one.
1. Break Down the Jargon
Before delving into action, familiarize yourself with the fundamental components of estate plans and what each one does:
On numerous financial accounts as well as other assets that have financial benefit like pension or insurance policy, you can list the beneficiary of all your assets when you die.
Will and Trust
These papers or documents determine how you want your assets to be distributed amongst your dependents.
Directives and Power of Attorney
The directives provide a guidance on your preferences when you are incapacitated. The powers of attorney assigns a professional the ability to make medical and financial decisions if you cannot make them yourself temporarily or permanently.
2. Compile and Inventory
Come up with a list of your assets including all your life insurance policies, financial accounts, possessions and real estate. This should be done in a spreadsheet or an asset inventory template. It will organize everything into one place.
Providing an account statement is a good starting point because it will tell you the balance of liabilities or the value of your assets.
3. Determine Whether You need a Professional
The do it yourself route is an option for many people who are in a simple financial situation. Companies out there can offer the services at a budget friendly way to handle the basics. Many offer an estate plan that includes a last will, financial power of attorney, and a living will.
Hiring an estate planning attorney will cost you a few thousand dollars. Hiring an experienced professional offers numerous benefits. The attorney will steer you through the process, offer tax guidance, and make sure that your estate plan achieves what you want from it.
4. Write your Will
Everybody needs a will. Even people in their 20s likely have assets like a savings account or a car or debts.
The document will detail how to handle your assets- whether you want them to go to friends, family, or charitable organizations. It also names the executor- the person who is responsible for making sure that all the instructions are adhered to. If you have kids, you can also name a guardian for them in your will.
A lawyer will likely do away with family discord or expensive, protracted legal battles. If you die without a will, the state will determine who will get your assets, and that might not match your expectations.
5. Set Up a Trust (Optional)
A trust is another way of transferring your assets to your beneficiaries. Consider it as a holding area. You transfer items for yourself to the trust, and, after you die, the trustee distributes the assets as per your instructions. The most common is the living or revocable trust, which can be updated while you are alive.
With a trust, your estate is distributed without going through a probate. This is a pro because a probate is a court supervised process of authentication and following directives. It is time consuming and expensive.
6. Ensure you Have Enough Life Insurance
There are numerous costs that come when a person dies. These costs include transfer taxes, estate taxes, and funeral arrangements. This is why it is important to have enough life insurance. Without life insurance, it is possible for these expenses to deplete your estate.
7. Establish Financial and Health Directives
Estate planning does not necessarily state what happens when you die, it also dictates how you wish your doctors to proceed if you ever get incapacitated and your end-of-life preferences. Some of the things to consider include: creating a living will, establishing a healthcare proxy, and setting up a power of attorney.
8. Double Check your Account Beneficiaries
Establish an account like a life insurance policy or a 410(K) that you can always add beneficiaries to. Naming the beneficiaries is the easiest way of determining who will be taking over an asset. It is important to note that the person listed as an account beneficiary will override what’s in your will. Once every year, confirm who is listed and update the beneficiaries during major life changes.
9. Get Organized
Do not share the locations of important documents or any account logins. Opt for the organization strategy that feels most intuitive and easiest, to make the process of updating easier. Regardless of who you trust, make sure you let a few people know the location of the binders, safe, documents, and logins.
10. Stay up to Date
Constantly update your estate plan following major life events such as deaths, births, new homes, and new jobs. Update whenever there are changes in inheritance law.